From NCUA to Technology to Soul Searching: Editor/Publisher's Column

At the Credit Union Enterprise Risk Management conference earlier this month, a senior official at the NCUA declared that the agency is taking a more qualitative approach rather than quantitative in its examinations. Tim Segerson, deputy director of the Office of Examination and Insurance, acknowledged that credit unions that don’t take a certain level of risk damage their income, making them a potential risk to the insurance fund. He explained that the NCUA’s exam guide even instructs examiners to take a step back and look at the bigger picture.

Unfortunately, that’s not what we’re hearing from credit unions on the ground but of course there's a bias there too. Turning a ship as big as the NCUA is a tall task, and it’s not going to happen overnight. I know with our small staff at Credit Union Times, it is a feat to accomplish the smallest things sometimes, and, of course, you’ve experienced this in your organizations as well. People and organizations get set in their ways. But if the NCUA’s upper management is consistent in its steering and enforcement it will get there.

Support will have to come from on high as well. Board support is helpful, but each director is only there for a maximimum of six years at a time. The new executive director of examinations will be holding the rudder in this process. The person the board picks to lead the agency’s career employees will have to have the diplomacy to work with the revolving door at the board level, the courage to enforce this way of thinking within the agency and a deep understanding of the credit union community. Given that many of the 25- and 30-year veterans of the agency are gone, this person likely will bring a very different management style and history that will assist in this new direction. In the end it will be to the benefit of the NCUA and credit unions to accomplish this.

In other NCUA news, the IG found nothing to substantiate accusations by Commodore Perry FCU that their examiner was sexually harassing the credit union’s employees and subsequently lowered the credit union’s CAMEL rating when it was reported. The finding is not surprising and in a he-she said situation like this, there won’t be corroboration. Still the situation is sad and should be dealt with appropriately. An independent third-party review is needed.

The NCUA is in a bind because it can’t discuss the exam findings that could legitimately support a lowered CAMEL score. The Supervisory Review Committee that could review the case is also within the NCUA, so the results will be suspect, particularly since the regional director who declined to send a different examiner to the credit union, Herb Yolles, is the same one who made the retaliatory call for dual exams for all state- chartered credit unions in North Carolina after SECU was permitted by the state regulator to release its state CAMEL rating. He also accused N.C. regulator Jerrie Jay of stating that the NCUA had begun terminating SECU’s insurance, which recordings later proved she did not. However the IG yet again let an NCUA employee off with a free pass finding it was a misinterpretation.

As if exam issues aren’t enough, credit unions are also facing heat from new competition–this time coming from a partnership between Amex and Walmart. While some in the industry have said it’s not a real threat to banking relationships, it will be transformative. The sheer reach of those two companies coming together commands respect.

It also brings me to the next point in that it questions whether credit unions are truly serving those of modest means. This was an issue that Keith Leggett, senior economist at the American Bankers Association and author of the Credit Union Watch blog, raised the issue of whether credit unions are losing their soul during the CU Water Cooler Symposium last week. Of course, he’s biased, but there's some truth to it. Plenty of credit unions work to not include members in the decision-making process. Annual meetings and directors’ elections are not promoted at many credit unions and field of membership loopholes make the common bond increasingly less apparent. Credit unions must be solid in their banking skills but also rooted in being a credit union. Otherwise the member-ownership will become what Leggett called it: just a good PR line.

Finally, in the third of three conferences I attended in the last two weeks, BAI Retail Delivery was a new one for me and a great experience. I saw some familiar credit union faces there, but there should certainly be more. The thought leadership and technology to help credit unions compete in a world where consumers can bypass their financial institution completely with an app was, well, priceless.